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November 2011, 04/11/2011

We decided to share our views on how the Greek economic crisis will affect Bulgarian economy. It was also an interesting month in Bulgaria as there were elections for local government and a president.

Greek Crisis: Is Bulgaria Safe?

It has been over a year since the problems in Greece concentrated the attention of the European leaders. Since this point in time there has not been a single month without news of plans being drawn about rescue of Greece and Euro currency from the threatening storm.

The problems of Greece came from spending more money than the government was collecting from taxes for long period. The deficit was funded by borrowing money from foreign banks (mainly French and German) through issuing state obligations. Thus the state debt increased to an amount which could not be paid off anymore. In 2010 the Greek government was put under pressure to start reforms in order to save money and start paying off the debt. The EU would help by giving additional funds for reasonable amount of time whilst Greek economy was cured from the proportionally very high state expenditures. However Greek government faced the resistance of their own people to part with the benefits of the past. Strikes of state servants and workers of various industries in Athens and most big cities were a daily occurrence. People simply want to continue to live la dolce vita without changing any of their attitudes.

Compared to the above Bulgaria is completely different case. Following a severe bank crisis in 1997 the government and Bulgarian National Bank introduced strict rules for state spending and bank capitalisation. Between the years 1998 and 2008 there were budget surpluses (Bulgarian government was spending less money than collecting). Bulgaria has much lower state debt and budget deficit of less than 3%. 2009 was the only year when the budget deficit exceeded this healthy figure going up to just 4%. The restrictions provide confidence in the stable development of the economy but, on the other hand, make life of most Bulgarians hard as majority spend about half of their budget on food and utilities. Bulgarian economy just started in last quarter of 2010 to grow slowly again after the last crisis. Now according to the Bulgarian finance minister Simeon Diankov Bulgaria is safe out of the economic crisis. However this safety is fragile as such a small export oriented economy depends much on the growth in the Western European economies.

What is the impact of the Greek crisis on the Bulgarian economy and what can be expected if the problems deepen? It was again the finance minister Diankov who claimed that the trade between the two countries has decreased significantly and the Greek crisis will not have direct negative impact. However the national statistic shows that Greece is one of Bulgaria's major export markets (9% of Bulgarian exports in 2010). Being immediate neighbours the two economies are strongly connected. Several Bulgarian banks are owned by Greek banks (comprising about one-third of the market). This does not mean that Bulgarian banks will collapse but if there are problems in Greece, banks will be looking to take back to Greece more funds which means even less credits with higher price for the Bulgarian businesses. Even now credit policies are very restrictive and price of the capital is high. This will put Bulgarian producers in a difficult situation and will make them less flexible; they will not be able to invest in modern technologies and will be less competitive on the international markets. The third direct impact is that large number of Bulgarians work in Greek tourism and services. These people are paid much better than workers on similar positions in Bulgaria. Many of these people send their income back to support their families in Bulgaria. If Greek economy collapses many will lose their jobs and less money will be coming into the Bulgarian economy.

There are other points which are to the positive side. Over 2,000 Greek companies have moved their business to Bulgaria recently fearing the problems in their home land. Some Greeks are looking to invest their savings away from the uncertain banks and quite a few sales have been completed during the summer months in the ski resorts and regions in Southwest Bulgaria with Greek buyers. In addition there has been steady growth of Greek tourists holidaying in Bulgarian winter and spa resorts in the same regions.

It is difficult to predict all the outcomes in a world where economies are so much connected and where relationships are so complex. The world markets already reacted to the news from Athens and Nice and Euro went down compared to the US dollar. If this trend continues fuel prices (which are formed in US dollars) will rise. As a direct result for Bulgarian goods and services for daily consumption such as petrol, electricity, transport, food will be increased too. This will put pressure on the weak domestic demand and put break to the slow growth.

Bulgarians want to believe problems in Greece will be resolved without negative effect on the Bulgarian economy. Naturally fears are connected with lost of jobs and reduced income. There have been enough crises during the last 20 years and life for many seem to have worsen despite the hopes and talks for the bright European future.

Local And Presidential Elections

This autumn was a hot election season in Bulgaria. Elections for president of the Republic, mayors and local governments were held on two rounds on 23rd and 30th October.

On the first round on 23rd October 18 candidates competed for president. The first two were Rossen Plevneliev from the ruling party GEBR and Ivailo Kalfin from BSP. Subsequently Rossen Plevneliev won the presidential campaign receiving 52.58% of the votes with Kalfin receiving 47.42% on the second round on 30 October.

Rossen Plevneliev is the former minister of the regional development. He was the most popular between the GERB ministers before leaving the cabinet in early September to take part in the presidential run. He joined the government in 2009 as an expert. He was a developer and manager of the first industrial park in Sofia which turned into success. Before that he was involved with large road construction projects in Germany. Plevneliev's main priority as a minister was planning and building of new motorways in Bulgaria. His pride was the plan to finish 7 motorways and 7 high speed ways by 2020. He has always claimed to aim at policy of new kind based on pragmatism. The mandate of the new Bulgarian president will start in January 2012.

Citizens of other EU countries residing in Bulgaria had the right to be elected and to vote for mayors and local municipal councils. As the number of foreigners living in Bulgaria has grown recently some parties and candidates held special meetings for these people to discuss their priorities and ideas.

Bulgarian Tourism Registered Growth in Summer 2011

Bulgarian tourism sector registered a steady growth of the vacations for the first 8 months of 2011. Both number of tourists and revenue increased - by 5% and 5.6% respectively. More than four million tourists visited Bulgaria for the same period. Traditionally the main income comes from sea tourism and ski tourism coming second.

This summer the biggest number of foreign tourists came from Russia (290,000) and Germany (240,000). The number of Russian tourists exceeded for the first time the number of Germans. Foreign visits from Russia, Ukraine and Central Europe registered the biggest increase.

There is optimism about the winter season 2011-2012 too. The National Tourism Board predicted an increase of 7% in tourist numbers for the winter season. The board thinks that winter growth will be driven by a rise in Greek visitors to winter resorts.

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